Debt and Corporate Performance: Evidence from Unsuccessful Takeovers

Posted: 4 Nov 1996

See all articles by Assem Safieddine

Assem Safieddine

American University of Beirut - Olayan School of Business

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 29, 1996

Abstract

In a sample of 573 unsuccessful takeovers we find that, on average, the failed targets significantly increase their debt levels. Failed targets that increase their debt levels more than the median are less likely to be taken over in the future, invest less, and have better operating performance in the five years after the takeover attempt than failed target firms that increase their debt levels less than the median. In addition, those failed targets that increase their leverage the most outperform their benchmarks in the five years following the failed offer. The stock prices of those failed targets that increase their leverage less than the median do very poorly over the following five years if they are not subsequently taken over. The evidence in this paper suggests that debt helps firms remain independent not because it entrenches managers, but because it commits the managers to make the improvements that would have been made by the bidding firm.

JEL Classification: G30

Suggested Citation

Safieddine, Assem M. and Titman, Sheridan, Debt and Corporate Performance: Evidence from Unsuccessful Takeovers (October 29, 1996). Available at SSRN: https://ssrn.com/abstract=7870

Assem M. Safieddine (Contact Author)

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon
961 1 374374 (Phone)

HOME PAGE: http://sb.aub.edu.lb/faculty/nbk.asp

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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